Previously, I had written a post on what value-cost averaging is and how it can be another viable alternative to dollar-cost averaging. In this post, I want to backtest this strategy against 10 years of STI data.
In dollar-cost averaging, we invest a fixed amount of money into the stock market each period, purchasing variable units of the investment.
In value-cost averaging, we will invest an amount of money so that the value of our investments will be the same as if we had saved up a fixed amount of money every period and not investing it.
Let me give you an example to illustrate. If we do dollar-cost averaging, we might simply invest $100 each month into the STI. In value-cost averaging, we have to see what the value of our current investments is. We would buy units of STI so that the value of our investments …